Wednesday, 10 July 2013

Dollar Falls as Minutes Show Fed Wants More Job Progress

The dollar dropped versus the yen and euro after Federal Reserve Chairman Ben S. Bernanke said inflation and unemployment rates signal the U.S. economy needs more stimulus.

The greenback fell earlier against most major peers as minutes of the Fed’s last meeting showed many policy makers want to see more signs employment is picking up before they’ll begin slowing bond purchases. The yen climbed as the Bank of Japan began a two-day meeting amid signals the nation’s economy is gaining. Mexico’s peso erased losses, and Turkey’s lira slid.

July 10 (Bloomberg) -- David Owen, London-based chief European economist at Jefferies International Ltd., talks about the outlook for the euro-zone economy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

July 8 (Bloomberg) -- Hans Goetti, Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, talks about the economic outlooks for China, Japan and the U.S. He also discusses Federal Reserve monetary policy with Rishaad Salamat on Bloomberg Television's "On the Move." (Source: Bloomberg)

The “dollar is taking back some of the exuberance of the past few days,” said Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut. “The comment that inflation and jobs signal more Fed stimulus is needed is causing the market to react a little bit, perhaps taking out some of the hawkishness that was in asset prices in fixed income and foreign exchange.”

The dollar slid 1.5 percent to $1.2978 per euro at 5 p.m. New York time after climbing to $1.2755 yesterday, the strongest since April 4. Japan’s currency appreciated 1.5 percent to 99.68 per dollar. The yen advanced 0.1 percent to 129.35 per euro after reaching 128.02, the strongest level since June 27.

‘Highly Accommodative’

“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said today in response to a question after a speech.

U.S. unemployment, at 7.6 percent, hasn’t been below 7 percent since November 2008. The consumer price index is forecast to end the year at 1.5 percent, from 2.1 percent in 2012, according to economists surveyed by Bloomberg. That compares with the Fed’s 2 percent inflation target.

The Bloomberg Dollar Index (BBDXY), which monitors 10 major currencies, briefly extended losses after the minutes of the June 18-19 Federal Open Market Committee meeting were released in Washington. The gauge ended the day down 0.4 percent to 1,049.12. It climbed to 1,056.33 on July 8, the highest since June 30, 2010, on an intraday basis.

“Many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases,” according to the FOMC minutes.

The minutes also said that, in a discussion about the appropriate path of the balance sheet among the 19 participants, “about half” indicated “it likely would be appropriate to end asset purchases late this year,” and that “many other participants anticipated that it likely would be appropriate to continue purchases into 2014.”

‘Dovish’ Minutes

“We have the market taking a view that the minutes were somewhat dovish,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview.

The Fed is buying $85 billion of Treasuries and mortgage debt each month to put downward pressure on borrowing costs in the third round of its quantitative-easing stimulus program. The purchases tend to devalue the U.S. currency.

Bernanke told reporters after the June meeting that the central bank may begin to slow the buying this year and end it in 2014 if economic growth meets policy makers’ expectations.

The Fed chief said today at a National Bureau of Economic Research conference that a drop in the jobless rate to 6.5 percent wouldn’t necessarily trigger an increase in the key interest rate, which has been held at virtually zero since 2008.

BOJ Meeting

Bank of Japan Governor Haruhiko Kuroda and his fellow policy makers will talk about upgrading their assessment of the nation’s economy by using the word “recover” for the first time in more than two years, according to people familiar with the central bank’s discussions.

“The market has come to the conclusion that maybe there won’t be so much additional easing from the Bank of Japan down the line,” said Jane Foley, a senior currency strategist at Rabobank International in London. “We can go higher in dollar-yen over the medium term. We would need another bout of dollar strength to trigger that as opposed to isolated yen weakness.”

Thirteen of 20 economists in a Bloomberg survey completed July 8 saw no extra easing of monetary policy by the BOJ in the next six months, a reversal from a poll in May. TheInternational Monetary Fundupgraded Japan’s growth forecast this year to 2 percent from a 1.6 percent projection in April, citing the effects of a recent accommodative stance on confidence and private demand.

The yen has tumbled 21 percent in the past 12 months, the worst performer among 10 developed nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has gained 1.5 percent and the euro has strengthened 8 percent.

Turkish Lira

Turkey’s lira declined for the first time in three days versus the dollar and its bond risk jumped the most in two weeks after Fitch Ratings said a lengthy period of social unrest could put the nation’s investment-grade status at risk. The lira slid as much as 1 percent to 1.9608 per dollar before trading at 1.9476, down 0.2 percent.

An investigation into Turkish banks’ foreign-currency transactions after the central bank sold $2.25 billion to prop up the lira on July 8 is “routine,” the banking regulator’s press office said by phone today.

Mexico’s peso erased losses after falling earlier for a second day as speculation that the U.S. will pare monetary stimulus outweighed predictions lawmakers will pass legislation to bolster growth in Latin America’s second-biggest economy. The currency ended the day little changed at 12.9008 per U.S. dollar after weakening earlier as much as 0.7 percent.

Trading in over-the-counter foreign-exchange options totaled $38 billion, compared with $36 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the euro-dollar exchange rate amounted to $11.2 billion, the largest share of trades at 29 percent. Dollar-yen options totaled $10.1 billion, or 26 percent.